Investors want to buy part of Delphi

Tuesday

Dec 19, 2006 at 12:13 AM

BY TOM KRISHERTHE ASSOCIATED PRESS

DETROIT - A group of private equity investors has offered to pay up to $3.4 billion to buy shares of Delphi Corp. and could wind up owning as much as 72 percent of the auto parts maker in a deal that creates a framework for its successful emergence from bankruptcy, Delphi said Monday.
The company - which makes a slew of auto parts including entertainment systems, chassis, electronics and air conditioning - also said that its board named President Rodney O'Neal to replace Chairman Robert S. "Steve" Miller as chief executive, effective Jan. 1. Miller will serve as executive chairman until the company emerges from bankruptcy. O'Neal will remain as president.
Under the financing deal, Appaloosa Management LP, Cerberus Capital Management LP and Harbinger Capital Partners Master Fund I, as well as Merrill Lynch & Co. and UBS Securities LLC, will invest a minimum of $1.4 billion and a maximum of $3.4 billion in the company in exchange for stock.
Delphi plans to dissolve its current 560 million shares and issue 135.3 million shares of new common stock. Current Delphi shareholders would divide up 3 million shares of the new stock, plus they would get rights to buy more new shares at a discount.
Of the new investors, Cerberus and Appaloosa are the largest. Appaloosa already holds 9.3 percent of Delphi's current stock, according to LionShares.com.
The new investors would buy 30 percent to 72 percent of Delphi's new stock, depending on how many current stockholders decide to exercise their option to buy the new stock, Delphi said.
Delphi, the nation's largest auto parts supplier, said the agreement was part of a plan to emerge from bankruptcy protection by the second quarter of 2007. A reorganization framework agreement, signed by Delphi, the investors and former parent General Motors Corp., was included in the deal.
The new investment will be used to fully fund Delphi's pension plan, which at the end of 2005 was underfunded by $4.1 billion, the company said.
Separately, Delphi accepted a proposal from JPMorgan Chase Bank and a group of lenders to refinance the company's existing $2 billion debtor in possession credit line and about $2.5 billion in loans.
The agreements still must be approved by a federal bankruptcy judge in New York, where a hearing is scheduled for Jan. 5. The new investors and Delphi each have the right to terminate the agreement on or before Jan. 31 if Delphi fails to reach a wage and benefit agreement with its unions and a parts supply pact with GM.
The investors also can withdraw before Feb. 28, but that deadline can be extended if both parties agree.
The willingness of "very sophisticated" investors who already have a stake in Delphi to put more money into it speaks well for the supplier's future, said Jim McTevia, a Michigan-based corporate turnaround specialist.
"It looks like Delphi is going to survive," McTevia said. "It's a vote of confidence in the company and the company's ability to get out of Chapter 11 and become a bigger player in the global market."
The move to replace Miller with O'Neal also could help relations with the United Auto Workers union, whose president frequently criticizes Miller as a symbol of corporate greed. The UAW would not comment on the change.
"Today's agreements represent significant milestones in Delphi's reorganization and another major step towards emergence from our Chapter 11 reorganization in the U.S.," Miller said in a statement.
Under the deal, Delphi will issue 135.3 million new shares sometime during the first half of next year, the company said.
Various debt-holders would get 28 million shares, or 21 percent, and GM would get 7 million shares, or 5 percent. Existing shareholders would get 3 million shares and could buy up to 57 million more at a discount, for up to 44 percent of the post-Chapter 11 company.
GM said in a statement that the deal shows continued progress by Delphi and sets up a framework for the companies to keep negotiating. GM has estimated that it is liable for $6 billion in Delphi employee benefit costs. It may take on up to $2 billion in Delphi pension obligations, according to Delphi.
"Although we are encouraged by the progress of the negotiations between GM, Delphi and the other stakeholders thus far, we recognize that there are still a number of matters to be resolved and a lot more work is yet to be completed," GM said.
Delphi, GM's former parts-making arm that was spun off as a separate company, filed for bankruptcy protection in October 2005. It had 21,600 hourly workers at the end of September, the latest figures available.
The parts supplier plans to close or sell 21 of its 29 U.S. plants and focus on operating eight U.S. plants that make electronics, safety systems, heating and air conditioning systems and some mechanical parts. The plants slated for sale or closure make steering systems, brakes, dashboards and other parts that Delphi no longer considers part of its core business.
Delphi also has asked a court for permission to void previous labor contracts. The company continues to negotiate with GM and Delphi's unions on wage reductions for many of its hourly workers and has said it prefers a negotiated settlement to a court order.
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Associated Press Writers David N. Goodman in Detroit and Vinnee Tong in New York contributed to this report.
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On the Net:
Delphi Corp.: http://www.delphi.com